Quantitative Easing

Quantitative Easing. Quantitative easing is the control of the money supply by the MPC to influence AD and inflation.

Basically quantitative easing is the control of the money supply to influence AD and inflation. If inflation is too low, the central bank could pump money into the economy by buying assets (usually government bonds) from agents (the central bank could either print money or transfer money electronically). Banks like Barclays sell their government bonds to the central bank, so Barclays has more money to lend, consumers can take out more loans so consumption rises, firms can take out more loans so investment rises and AD rises. Multiplier effects make AD shift further and inflation increases.